# S10. Setting up a limited company for construction
A limited company is not just a fancier way to write your name on an invoice. It's a separate legal body with rules, duties and paperwork that sit on your shoulders.
1. THE SHORT VERSION
A limited company is its own legal person. It earns the money, pays the tax, and can owe the debts. You stand behind it as a director and shareholder.
The main wins: limited liability, potential tax efficiency, and more "professional" image. The main pain: more admin, more rules, more ways to mess it up.
If you just want to get paid for your own graft with minimal hassle, sole trader is simpler. Company is for when the numbers and risk make it worth it.
2. WHAT A LIMITED COMPANY ACTUALLY IS
- It's a separate legal entity created under the Companies Act 2006. It has its own name, number and life.
- You're usually both a director (running it) and a shareholder (owning it). You wear both hats.
- If the company goes under, in most cases your personal assets are safer than as a sole trader – unless you've done something dodgy or signed personal guarantees.
It doesn't make you bulletproof, but it is a real shield compared to trading as just "you".
3. IS GOING LIMITED RIGHT FOR YOU (RIGHT NOW)?
Good reasons in construction:
- Bigger clients, agencies and some main contractors prefer or even insist on Ltd for certain contracts.
- You're hitting higher day rates and want tax planning (salary + dividends, company pensions, company expenses).
- You're taking on bigger jobs and want limited liability between your personal life and the business.
Bad reasons:
- "It sounds professional" but you hate admin and don't want to pay an accountant.
- You're still hopping between low‑rate, short jobs where the hassle wipes out the tax savings.
If you're not sure, you're probably early enough that sole trader is fine for now.
4. STEP‑BY‑STEP: FORMING A LIMITED COMPANY
Step 1 - Choose a company name Must be unique and not too similar to another registered name. Check on Companies House. Must not pretend to be something it's not, and needs "Limited" or "Ltd" at the end.
Step 2 - Decide who owns and runs it
- At least one director (usually you).
- At least one shareholder (also often you, holding 100% of the shares).
- You must also list anyone with significant control (PSC), usually anyone with over 25% of shares/votes – on a one‑person company, that's just you.
Step 3 - Sort your registered office and SIC code
- You need a registered office address in the UK – this is what goes on public record. It can be home, accountant, or a service address.
- Pick a SIC code that matches what you do (construction, trades, etc.).
Step 4 - Company documents You need the core paperwork (you can use standard templates):
- Memorandum of association – confirms the shareholders agree to form the company.
- Articles of association – the rulebook for how the company is run.
For a simple one‑person construction company, the standard "model articles" usually work.
Step 5 - Register with Companies House Do it online via GOV.UK or through a formation agent. You'll give:
- Company name and registered office
- Director and shareholder details
- PSC info
- SIC code
- Articles and share structure
Fee: usually around £12–£100 depending on route.
You get a certificate of incorporation confirming your company exists and its number.
5. TAX AND HMRC: WHAT CHANGES
A limited company changes how tax works.
- The company pays Corporation Tax on its profits. You must register for Corporation Tax within three months of starting to trade.
- You, personally, are taxed on what you take out:
- Salary (PAYE, like any job).
- Dividends (profit distributions to shareholders) – taxed differently from salary.
You'll be juggling:
- Company accounts and a Company Tax Return for HMRC.
- Annual accounts and confirmation statement for Companies House.
- Your own Self Assessment for personal income.
It's manageable, but for most people a decent accountant stops this becoming a full‑time job.
6. DIRECTOR DUTIES - WHAT THE COMPANIES ACT ACTUALLY EXPECTS
Under the Companies Act 2006, directors have statutory duties. In plain English: you can't treat the company like a personal cash machine.
Core duties include:
- Act within your powers – follow the Articles and only use your powers for proper reasons.
- Promote the success of the company – for the benefit of members (shareholders) as a whole, taking long‑term, staff, and other factors into account.
- Exercise independent judgement – make your own decisions, don't just blindly follow someone else.
- Exercise reasonable care, skill and diligence – behave like a reasonably careful, competent director in your role.
- Avoid conflicts of interest – don't put yourself in situations where your personal interests clash with the company's.
- Not accept improper benefits from third parties.
- Declare interests in any proposed company transactions.
Mess these up badly and you can face disqualification, personal claims and, for very serious stuff, even criminal issues.
7. RUNNING THE COMPANY DAY‑TO‑DAY (NOT JUST FORMING IT)
As a director you must:
- Keep proper company records – directors, shareholders, PSCs, resolutions.
- Keep accurate accounting records – income, costs, assets, liabilities.
- File annual accounts and a confirmation statement with Companies House on time.
- File a Company Tax Return and pay Corporation Tax on time.
- Register for PAYE if the company pays salaries (including your own).
Construction‑specific extras often include:
- Registering the company for CIS as a contractor and/or subcontractor if you pay subbies or work for contractors.
It's not impossible, but if you're already flat out on site, outsourcing some of this to an accountant is usually money well spent.
8. PROS AND CONS FOR CONSTRUCTION PEOPLE
Main pros
- Limited liability – company debts are generally the company's problem, not yours personally (unless you sign guarantees or trade recklessly).
- Tax planning options – salary + dividends, company pension contributions, more scope for legitimate expenses.
- Credibility – some clients and agencies take you more seriously as "Ltd".
Main cons
- More admin – accounts, Companies House, Corporation Tax, payroll, CIS, IR35 checks.
- Director risk – duty breaches or trading while insolvent can land back on you.
- Costs – accountancy, software, insurance; the savings can vanish if you're not billing enough.
You need enough volume and rate for the structure to be worth the hassle.
9. HOW THIS PLAYS WITH IR35 AND CIS
- IR35 looks at how you actually work for each client, even if you're "Ltd". Inside IR35 = taxed like an employee for that contract.
- You may still get no employment rights from the client even if tax is taken like PAYE – worst of both worlds if the rate isn't right.
- Your company can also be in CIS – both as a subcontractor and as a contractor if you pay others.
So "Ltd" doesn't take you out of IR35 or CIS. It just changes the layers.
10. QUICK CHECKLIST - "HAVE I SET THIS UP PROPERLY?"
You want "yes" to most of these before you go limited:
- Do you actually need a company (client demands, bigger jobs, decent day rate), or are you just chasing a buzzword?
- Have you checked GOV.UK and picked a unique name, registered office and SIC code?
- Have you registered the company with Companies House and got your certificate of incorporation?
- Have you registered with HMRC for Corporation Tax (and PAYE if you're paying a salary)?
- Do you understand, at least in outline, your director duties under the Companies Act 2006?
- Do you have someone (or the bandwidth yourself) to handle accounts, returns, IR35 checks and CIS without it falling apart?
PAYE vs SOLE TRADER vs LIMITED COMPANY - IN ONE GLANCE
| Setup type | What it actually is | Main upsides | Main downsides | Best fits when… |
|---|---|---|---|---|
| PAYE employee/worker | You're on someone else's books. They run payroll, deduct tax/NI and control most of your day. | Holiday pay, minimum wage, some sick pay, redundancy/unfair‑dismissal rights (employee), pension, less paperwork. | Less control over hours and work, limited ability to offset expenses, you can be dropped when work dries up (especially as a worker). | You want stability and rights more than maximum take‑home, or you're early in your career and just want to work and learn. |
| Sole trader | You are the business. You invoice in your own name or trading name and report profits via Self Assessment. | Simple to set up, cheap to run, easy to understand. Good control and you can offset genuine business costs. | No limited liability – debts and claims come straight to you. More tax admin, must save for tax yourself. Fewer big‑client doors open. | You're starting on your own, doing smaller jobs or subby work, and want flexibility without drowning in company paperwork. |
| Limited company (Ltd) | Separate legal entity. You're a director/shareholder, the company earns the money and pays Corporation Tax. | Limited liability, more tax‑planning options, often looks more professional to bigger contractors and agencies. | More admin (Companies House, Corporation Tax, payroll, CIS, IR35). Director duties under Companies Act 2006. Accountant costs. | You're on decent, steady rates, dealing with bigger clients, and ready to handle or pay for the extra admin to protect yourself and plan tax. |
WHAT TO DO NEXT
- Check whether going limited actually makes sense for your current income and workload.
- Register your company with Companies House and get your certificate of incorporation.
- Register with HMRC for Corporation Tax within three months of starting to trade.
- Open a business bank account in the company name - do not use your personal account.
- Find a decent accountant who understands construction and CIS before you get buried in admin.
SOURCES
- Companies Act 2006. https://www.legislation.gov.uk/ukpga/2006/46
- Corporation Tax Act 2010. https://www.legislation.gov.uk/ukpga/2010/4
- Income Tax (Earnings and Pensions) Act 2003 (IR35 provisions). https://www.legislation.gov.uk/ukpga/2003/1
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